Underused Housing Tax: What You Should Know About Exemptions

The Underused Housing Tax (UHT), implemented by the Canadian federal government on January 1, 2022, is a yearly tax of 1% placed on the ownership of vacant or underused housing in the country. While it primarily applies to non-residents of Canada, it can also affect Canadian owners in certain circumstances who own properties that have less than 4 residential units.

Here’s what you need to know about UHT, how to qualify for exemptions, and other factors relating to the new tax.

UHT Overview

The UHT applies only to certain types of owners

The UHT is required for underused housing that is owned by non-residents, either directly or indirectly and either partially or wholly. For affected owners of residential property, UHT obligations are applicable on December 31 of the relevant year. Payment must be made to the Canada Revenue Agency (CRA) by April 30 of the succeeding calendar year.

To calculate the UHT, multiply the value of the residential property by the 1% tax rate.

What Are the Two Requirements for the UHT rules?

  • an annual reporting requirement
  • a tax liability for UHT (for some filers)

What Are the Categories of Owners of Residential Property According to the UHT?

  • Affected Owners – Owners that must file the UHT return and pay the tax. This includes:
    • Non-Canadian citizens or non-permanent residents that don’t qualify for an exemption
    • Private corporations, such as Canadian-controlled private corporations (CCPC),  trusts, and partnerships (not including estates) that own property and do not qualify for an exemption
  • Affected Owners – Owners that are required to file the UHT return but not to pay tax. These are generally qualified for an exemption but must still claim the exemption for the  calendar year by filing the annual return.
  • Excluded Owners – Owners that don’t have UHT filing or tax obligations. These include:
    • Canadian individuals, i.e. Canadian citizens or permanent residents of Canada
    • Individuals with title to a property (in their capacity as a trustee of a specified investment flow-through trust, real estate investment trust, or mutual fund trust)
    • Publicly traded Canadian corporations
    • Cooperative housing corporations
    • Government entities
    • Indigenous corporations or governing bodies
    • Registered charities
    • Prescribed persons (which is yet to be defined by regulation)

UHT Exemptions

Residential properties with limited availability may be exempt from UHT

Affected owners qualified for one of the following exemptions do not need to pay the UHT:

Exemptions Based on Qualifying Occupancy

An exemption is applicable to an owner of a residential property in the following scenarios:

  • Primary place of residence – An owner is exempt from the tax if the residential property is identified as the primary residence of:
    • the owner or the owner’s spouse (including a common-law partner)
    • a child of the owner or owner’s spouse occupying the dwelling while undergoing authorized study at a designated learning institution
  • Qualifying occupants – If the residential property is occupied by qualifying occupants in relation to the owner for at least 180 days of the year. Qualifying occupants include:
    • an arm’s length tenant (under a written agreement)
    • a non-arm’s length tenant with continuous occupancy (under a written agreement and while paying rent)
    • an individual owner or their spouse who inhabits the residence for the purpose of engaging in lawful employment while in Canada with a Canadian work permit
    • the owner’s parent, spouse, or child so long as they are a citizen or permanent resident

Exemptions Based on a Property’s Limited Availability

A property is eligible for an exemption if any of the following factors restrict the availability of the residential property:

  • Limited Seasonal Access – The property is not accessible all year round or is not a suitable dwelling for some parts of the year
  • Disaster or Hazardous Condition – The property is unsuitable for occupancy at a minimum of 60 consecutive days in the calendar year as a result of a hazard or disaster brought about by events that are beyond the owner’s reasonable control, and was not exempt in the prior year for the same reasons
  • Under Construction – The residential property was not considerably completed (above 90%) before April of the calendar year, or was substantially completed in January, February, or March and was put up for sale during the year but never occupied
  • Renovation – The property is uninhabitable (owing to a renovation done without undue delay) for at least 120 consecutive days in the calendar year, and did not have exemption status in a previous year for the same reasons
  • Year of Acquisition – The owner initially acquired the property within the calendar year and did not previously own the same property in any of the 9 years prior

Exemption Based on Type of Owner

Below are the types of owners that are exempt from UHT:

  • Deceased owners and the personal representatives of the deceased owners (exempt within the year or following year of the death of the owner)
  • Surviving co-owners if a co-owner is deceased and owned a minimum of 25% interest in the property (exemption applies to the year or the previous year of the co-owner’s death)
  • Specified Canadian corporations (corporations with less than 10% of their equity value or votes owned by foreign entities)
  • Persons who own the property as a partner of a specified Canadian partnership
  • Individuals who own the property as a trustee of a specified Canadian trust (which owns a residential property in which the beneficiaries with an interest in the property are excluded owners or specified Canadian corporations)

Exemption Based on Prescribed Area and Condition or Person

An exemption can be made for recreational and other properties in areas with a lower population density if the residential property meets both criteria:

  • Located in a prescribed area (as defined by the CRA and based on regularly updated census data)
  • Used by the owner, their spouse, or both no fewer than 28 days in the calendar year

Prescribed persons are also eligible for an exemption from the UHT. However, the formal definition of this term has yet to be released.

To learn more about the UHT and its requirements, get in touch with Smith & West CPA. Our professional tax accountants offer tax consulting in Ottawa. Give us a call at (613) 425-8871.

By |2023-10-06T19:21:19+00:00March 25th, 2023|news|0 Comments